What 'Billions' gets right (and wrong)

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TV show 'Billions' deals in some complex hedge fund details - but how much, if any of it, is true to life? What can you learn from the Showtime series?

What's cooler than millions of dollars? Billions of dollars. That's the premise of Showtime's latest smash hit TV show, Billions. It stars Homeland's Damian Lewis as Bobby Axelrod, a hedge fund manager who is known to be charitable, but whose intentions might be less so. Opposing him is Paul Giamatti as Chuck Rhoades, a U.S. Attorney who is determined to take Axelrod down for illegal trading.

It's got all the dramatic fireworks you'd expect from a boiler room thriller, but also dips into some extremely complex investment planning affairs - but how much does it actually get right? Our take on the TV show.

1) Billions' funds are not that different from our own

Hedge funds often seem a million miles from our own investments - you're probably looking at generating enough wealth for a comfortable retirement, rather than aiming for eight figures. However, the principles behind a hedge fund and a mum-and-dad investment scheme are similar.

A hedge fund is just one type of managed fund, which is where a manager pools the resources of many investors and manages that money on their behalf. The investors pay a fee for the expertise and skill of their manager – which in Bobby Axelrod’s case is quite high!

Bobby’s investors include a police pension fund (the American equivalent of a super fund) – hence his cosy relationship with the cops. In reality though, most investors aren’t that close to their fund manager, and there is strong regulation from the Australian & Securities & Investment Commission (ASIC) to make sure everything is done above board.

2) Billions' crimes are very, very real.

Early in Billions, a trader at Axelrod's fund receives word that a stock is about to get Food and Drug Administration approval, meaning it will hit the market. He buys a significant interest in this, and watches as it triples in price. Seem like a smart move? It's actually insider trading – a real activity.

ASIC is very cut and dried on what constitutes insider trading - trading financial products while in possession of information, or having received information, that is not generally available to the public.

It can have significant impacts on the stock market, which means regulators keep a close eye out for warning signs. They also zero in on high-profile figures committing insider trading, in the hope that if a big name is pulled under for illegal activity, it will dissuade everyone else from the same unfair, illegal practices.

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3) Investor psychology really makes a difference

One of the main characters in Billions is a hedge fund psychologist - Wendy Rhoades, played by Maggie Siff. While it can seem like a job made up for television, the psychology of investment is a real thing. ‘Behavioural economics’ was popularised by books such as Freakonomics, and delves into the thinking behind an investor’s decisions – which aren’t always rational.

For a hedge fund manager, a psychologist could certainly help guide their decisions, as managing stress is important when there's a lot of money at stake. While there are often gains with the best investments and managed funds, there will also be losses. The magnitude of these depends on your risk appetite, but anyone willing to play in the space of big investments needs to be prepared for losses.

Everyday investors wouldn't expect funds to have psychologists on hand, but they can minimise their potential stress.

Consulting with a financial planner means you can discuss risk tolerance and appetite, preparing your finances and your mindset accordingly. A professional can also help you avoid making rash decisions based on hunches or emotions.

4) All investments balance risk and return

At one point in Billions, Bobby Axelrod promises his investors that returns on the hedge fund will only ever go up. This is very much a fiction – you’d be hard-pressed to find any fund manager who didn’t experience losses at one point, because markets inevitably go up and down.

The returns that a managed fund delivers vary in line with the market conditions and the fund’s investment style, and while Bobby promises big returns, he also suffers some big losses (Season 2 spoiler alert!).

The gains and losses you face as an investor depend on the risk profile of the managed fund you choose. Some deliver higher returns but have to build in more volatility to achieve them, for example.

There are many kinds of funds, and investors need to understand what they are trying to achieve before they choose one.

So while Billions does get the basics of fund management right, it presents just one option of where to invest money. In Australia, you should look for investment advice from a professional before you decide to find the next Bobby Axelrod. Why not talk to us instead?